U.S. and EU Announce a Ceasefire in the Trade War, Not a Formal Truce

On July 25th, U.S. President Trump and European Commission President Jean-Claude Juncker announced that they had reached an agreement to eliminate bilateral trade barriers, ease trade frictions through negotiations, strengthen trade cooperation and suspend new tariffs on the goods. But this announcement seems like a temporary ceasefire in their trade war than a formal truce.

First, U.S. and EU agreed to a new round of negotiations to resolve tariffs on U.S. steel and aluminum, as well as retaliatory tariffs in Europe. But there are no timetables, details and resolution mechanism for implementing the agreement. In the agreement, the U.S. did not explicitly agree to stop increasing tariffs on EU steel and aluminum products. Especially in terms of automobile tariffs, there is no specific commitment to how to solve this problem.

Second, as Trump said in a tweet, “European Union representatives told me that they would start buying soybeans from our great farmers immediately.” But the EU-U.S. deal can’t help the U.S. soybean and local soybean farmers.

European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!

Indeed, even if the deal did decide to buy more U.S. soybean, the entire EU represents a relatively small soybean market. And China is by far the world’s largest consumer of this commodity, and the trade war between U.S. and China is still active. In 2017, the entire EU imported 14.5 million tons of soybeans, compared with 95 million tons in China.

A few months ago, China suddenly stopped purchasing U.S. soybeans in retaliation for Trump’s tariffs and increased procurement from Brazil. This shift has led to a sharp fall in U.S. soybean prices and a rise in Brazilian prices – that’ s why the EU has been snapping up more and more U.S. soybeans in recent weeks. But it is just not enough to make up for the lost Chinese market, even the Trump administration promised to subsidize farmers hurt by tariffs.

And third, the European Union is an international alliance of 28 member countries. When it comes to the trade frictions with the United States, each of them has their own position. Although Juncker has a strong position in European politics, its final agreement with Trump must be approved by leaders of each country. If any leader disagrees, the entire negotiation process and the results will be subverted.

There is also a question of whether the Europeans can trust the capricious Trump administration. More than two months ago in Washington, the United States and China had reached a consensus to stop increasing tariffs and launching the trade war. But ten days later, the White House announced that it would impose a 25% tariff on $50 billion of imports from China. No wonder the Guardian said that Trump is not a reliable deal marker. An American economist Chad Brown said bluntly, “We could see a tweet in 20 minutes to completely reverse all of this.”

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